Comment by overfeed

> governed by how much a bank will lend [...] Very small but affordable houses will never be built because a bank will not finance a $10,000 loan over 30 years.

Banks typically won't hold onto to your loan for 30 years. Mortgages in the US have been thoroughly fiscalized: your typical bank/mortgage lender bundles up a bunch of loans and sells them to another servicing party as soon as the ink dries on the closing documents. The specialized servicer package them, and offer them as securities to investors who in turn will get a monthly return based on aggregate mortgage installments.

All this to say: lending banks would be happy to finance thousands upon thousands of 5-digit mortgages, and sell those to securitization specialists.

New houses aren't built in existing neighborhoods because dense housing is unpopular, as is a distaste of having "poorer" people as neighbors. Static zoning, terrible transport networks and no funding for new public infrastructure tag-team to discourage new developments on undeveloped farmland.